Follow our free guide to form an LLC in North Carolina:
- Pros and Cons of Forming an LLC in North Carolina
- Starting Your North Carolina LLC
- Maintaining Your North Carolina LLC
- Additional North Carolina Resources
Check out our informative guide on building an LLC in North Carolina and learn everything you need to know about forming your LLC business.
Pros and Cons of Forming an LLC in North Carolina
Competitive Cost of Living
North Carolina’s cost of living, while not as low as Kentucky or Alabama, is still competitive versus the US average with a score of 95/100. Three of North Carolina’s major cities recently made the list of most affordable US cities, especially considered the lower cost of real estate — $175,000 versus the $200,000 US average.
Low Taxes for Businesses
The corporate tax rate in North Carolina is much lower than most states, which is currently at 3% and dropping to 2.5% beginning in 2019. Some businesses also pay a franchise tax of .15% — breaks down to $1.50 per $1,000 of taxable profits.
Privacy for LLC Members
North Carolina does not require all of the names of members/manager of an LLC to be included in the Articles of Organization. In fact, an organizer (the party who prepares and files the paperwork) is able to submit the formation paperwork in place of the members.
High Cost of Industry-Specific Permits
Some permits cost higher than others. For example, the alcohol permits necessary for restaurants/hotels/clubs/banquet facilities in North Carolina are plentiful and expensive. Business owners are required to have separate permits to serve, beer, wine, and mixed beverages and the cost runs from $400 to $1,000 PER permit. For businesses who offer catered parties/dinners on company premises, the permits for having alcohol starts at $200 per permit.
High Fee for Annual Report
The annual report fee for LLCs in North Carolina is much higher than most states. The cost of the annual report is a shocking $200 per year.
Cost of Doing Business
- $125 Filing Fee / $200 Annual Report
Starting Your North Carolina LLC
The process behind forming an LLC in North Carolina may seem daunting, but the steps for creating a business are not that difficult when you have help. The list below includes what you need to do to ensure that your North Carolina LLC comes together correctly:
- Step 1: Name your Business
- Step 2: Establish the Ownership of your LLC
- Step 3: Choose a Registered Agent
- Step 4: Register the Articles of Organization
- Step 5: Create your LLC Operating Agreement
- Step 6: File the paperwork for an EIN
Step 1: Name Your North Carolina LLC
Deciding on a name for your new business is a vital first step in forming your North Carolina LLC. As you create your list of possible company names, there are a few guidelines to keep in mind:
The official name of your business must end with one of the following:
- Limited Liability Company
- Limited Company
Your business name cannot be intentionally misleading to consumers
The name of your new LLC must not be similar to another organization’s name/trademark
A few restrictions do exist regarding the name of your LLC, depending on the state where you are starting your business.
A few examples include:
- “Lottery” and “Bank” are ineligible for use (any state)
- Terms that represent educations or Veterans’ organizations are restricted
- Terms related to the Armed Forces or civil servants (police, EMT, fire)
Depending on the state, LLC business names associated with some government and/or financial entities are not always restricted. Additional paperwork may be required.
In addition to choosing a name for your LLC, creating an online presence is equally important in the current culture. You can easily check domain name availability at a number of online web services sites.
Step 2: Establish Ownership
The owners of an LLC have specific names — they are known as either as members or managers. The difference in the title depends on the management structure of the business.
LLCs generally have two management structures:
- Member-managed (ownership of business is divided among the members and all parties receive portions of the profits)
- Manager-managed (the appointed manager is the main operator and the members are passive investors who are not actively involved in the daily business operations)
Once you have chosen a name for your business, you will need to choose a management structure and determine the members of the LLC. Key points regarding North Carolina’s rules concerning LLC ownership include:
Required Number of Members
North Carolina LLCs must have at least one member or manager in order to form an LLC.
Member Disclosure Requirements
Not all of the members/manager(s) are not required to disclose their identity in the Articles of Operation. At least one person must sign the document; an organizer can be used to file the formation paperwork.
North Carolina does not have an age requirement for LLC members. An organizer, however, must be at least 18 years old.
North Carolina does not impose any residency restrictions on LLC members
Step 3: Find a Registered Agent in North Carolina
Any LLC formed in North Carolina is obligated to select a registered agent for the business and submit the agent’s contact information, including a physical address to the state. Per law, the agent has to be accessible during standard business hours since he/she is the LLC’s primary contact person for the state.
What is a registered agent?
A registered agent is a person or business who is authorized to accept official government notices (including the Secretary of State) and service of process notices on behalf of the LLC.
Why do you need a registered agent?
Whenever you start an LLC in North Carolina, the law requires you to appoint a registered agent so that the state government has a consistent contact person for your business. This position is definitely beneficial for LLCs that do not have a physical address.
Who can be a registered agent in North Carolina?
The requirements to be a registered agent are as follows:
- A resident with a physical address in North Carolina
- An LLC or corporation that is licensed to conduct business in North Carolina.
It is also possible for you to be your own registered agent as long as you use a physical address.
Why you may not want to be your own registered agent
Because the registered agent’s name and address are a matter of public record, LLC business owners who choose to be their own registered agent risk compromising their personal information.
Tip: Avoid the hassles that come with being your own registered agent and choose Swyft Filings to fill the registered agent needs for small businesses in North Carolina. Find more information here.
Step 4: File the Articles of Organization
One of the most important steps involved in officially (and legally) forming an LLC in North Carolina is filing the Articles of Organization with the Secretary of State. This vital document includes the following:
- The name of the LLC
- The location/address of the business
- The name and physical address of the registered agent
- The name(s) of the member or organizer filing the paperwork
- The statement of purpose
Additional North Carolina Filing Requirements
North Carolina also allows for people in the professional services industry to form a type of LLC known as a Professional Limited Liability Company (PLLC) — this is generally used by accountants, doctors, attorneys, and insurance agents.
A few points to consider:
- All members of the PLLC must be licensed in the profession of the business.
- The PLLC is only allowed to provide services for which the business was formed.
- The members are still subject to whichever licensing boards govern the PLLC’s profession.
Please Note: When filing the Articles of Organization, the certification from the business’s licensing board must be attached to the paperwork.
Step 5: Create an LLC Operating Agreement
While an Operating Agreement is not required to form an LLC in North Carolina, this document is still considered a vital necessity because it adds structure to your business and projects a sense of professionalism.
What is an LLC Operating Agreement?
The LLC Operating Agreement is a legal document that defines the rights and responsibilities of each person involved in the business and laying out the details involving how the business will operate.
Why do I need an LLC Operating Agreement?
Because the LLC Operating Agreement defines the roles of the business’s members and provides direction for daily operations, the document ensures stability and structure to the LLC and reduces future disputes.
What goes into an LLC Operating Agreement?
While there is not a set rule of what must be included in your LLC operating Agreement, most documents include the following the information:
- Listed members/managers and their roles
- Initial capital contributions of the members
- Distribution of profits
- Voting percentages and regulations
- Member transfer/addition rules and restrictions
Tip: Get a customized LLC Operating Agreement for your small business with Swyft Filings. Find more information here.
Step 6: Obtain an EIN
What is an EIN?
The EIN (Employer Identification Number) is also known as a Federal Tax ID and is a nine-digit number that is assigned to your business by the Internal Revenue Service (IRS). The EIN identifies your business with the government much like a personal Social Security number.
What business entities need an EIN?
The types of business entities that need an EIN include:
- An LLC with employees (even if owned by one person)
- An LLC with more than one member
- A partnership (LLC or C-corp)
Please Note: A sole proprietorship is the only business entity that is not required to have an EIN.
Why is an EIN necessary?
The more common reasons you would need an EIN are:
- To open a U.S. bank account
- To file your company’s taxes
- To hire employees
- To pay independent contractors
If you have a business entity and collect revenue of any kind, you will need an EIN.
Swyft Filings offers EIN services for small businesses in North Carolina. Find more information here.
Maintaining Your North Carolina LLC
The initial steps that you have already completed for your LLC in North Carolina formed your business with the state; you can now move to the next phase to get your business ready to move forward. The next few steps are:
- Step 1: Register for Taxes in North Carolina
- Step 2: Obtain any Needed Permits and Licenses
- Step 3: File the Annual Report for your LLC
- Step 4: Request a Certificate of Good Standing
Step 1: Register for North Carolina State Taxes
Unlike many states, North Carolina does not require LLCs to pay a corporate or franchise tax. Members will need to pay state income taxes (5.499% in 2018/5.25% after 2019), as well as federal income taxes on their “pass-through” revenue.
An LLC can opt to be taxed as a corporation — for that, the business will be responsible for paying a corporate and franchise tax on earning. The corporate tax rate in North Carolina is currently 3% but will drop to 2.5% in 2019.
The franchise tax is a little different and breaks down to $1.50 per $1,000 of whichever option nets the most taxes:
- Total company stocks, surplus, and undivided profits
- 55% of the appraised value of all real property in North Carolina
- actual investment amount in the real property in North Carolina.
The minimum amount a company will pay in franchise tax is $200.
Step 2: Obtain Business Licenses and Permits
The state of North Carolina does not require an overall business license - the specific needed permits and licenses will depend on your business and its location.
Tip: If you would like to see more in-depth information on licenses and permits, please feel free to visit the content in our learning library that covers business licenses and permits.
Step 3: File an Annual Report
All LLCs formed in North Carolina are required to file an annual report with the Department of State. The purpose of the annual report is to keep your business’s information and status current with the state.
Due Date: April 15th
Implications of Late Filings: Dissolution of the LLC after 60 days deliquent
Swyft Filings helps you stay compliant by providing stress-free solutions. File your annual report with us today.
Step 4: Obtain a Certificate of Good Standing
The main steps for starting your North Carolina LLC have been completed, but you still need one more thing — a Certificate of Good Standing.
You will find that many financial institutions and businesses require a form of proof that your new LLC is fully compliant with the state. Getting a Certificate of Good Standing gives your LLC a “seal of approval” from the Secretary of State.
What is a Certificate of Good Standing?
The certificate of good standing is an official notification from the government agency that confirms your entity has been properly filed and is still in compliance.
Why should I obtain a Certificate of Good Standing?
In the course of doing business, you may need to prove that your LLC is properly filed and compliant with the state. A number of banks and businesses will request a Certificate of Good Standing as part of the due diligence process.
For the most part, any time you need to show your business is properly filed and fully compliant, you will likely need to present a Certificate of Good Standing.
Swyft Filings can create a Certificate of Good Standing for your North Carolina LLC. Click here for more information.